The demutualization of stock exchanges happened by means of a partial spin-off of stock exchanges (non-profitable entities), followed by a merger of the split assets into the exchanges incorporated as corporations.

Regarding IRPJ/CSSL, the prevailing understanding was that civil associations cannot perform spin-offs. Section 2,033 of the Civil Code was not applied (Section 2,033: Except if provided otherwise by a specific legislation, the modification of articles of incorporations of the legal entities referred in Section 44 [including associations], as well as theirs transformation, merger or spin-off, are ruled by this Code).

Therefore, Section 16, sole paragraph, of Law n. 9,532/1997, does not apply (Sole paragraph: The transfer of assets and rights composing the equity of exempt entities to another legal entity’s equity, due to merger or spin-off must be performed by the acquisition value or given value, if it concerns a donation). If it applied, the capital gain would not be taxed.

Therefore, Section 17 of Law n. 9,532/1997 was deemed applicable to the case (difference between the nominal value of the stocks received and the acquisition cost of the securities previously owned – evaluation of the securities by the acquisition cost). This provision determines the taxation of the increase of the securities value due to updates, as in the demutualization, in which the securities’ value was updated and, for this reason, the alienation value surpassed its cost.

Regarding PIS/COFINS, CARF decided that there was not a mere exchange of assets, but instead a return of capital. However, the return was made by means of stocks; therefore, it is reasonable to classify it fixed asset. Thus, the amounts earned in these transactions should not have been increased to PIS/COFINS bases, since revenues resulting from the alienation of fixed assets are excluded from these taxable bases.

As a result, CARF denied relief to the taxpayer’s appeal regarding IRPJ/CSLL and granted relief on PIS/COFINS.

(Decision n. 1202-000.813. Available at: <>. Accessed in: April, 2013).